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A conservative group is launching television and radio advertisements aimed at pressuring reticent Indiana Republican legislative leaders into writing Gov. Mike Pence’s proposed income tax cut into the state’s next two-year budget.

The Indiana chapter of Americans for Prosperity, a tea party-fueled organization funded by the Koch brothers, will launch a “six-figure” advertising buy in Indiana and accompany it with emails, phone calls and door-to-door efforts.

Its goal is the same as Pence’s: To lower Indiana’s individual income tax rate from 3.4 percent to 3.06 percent, a move that would save taxpayers – and lower state revenue – by about $520 million annually.

The group’s new campaign will send a message to Republicans who dominate both chambers of the Indiana General Assembly after winning supermajorities in November’s election, said Tim Phillips, Americans for Prosperity’s national president.

“This is meant to encourage them – to show them that there are folks that have their back,” Phillips said.

“A lot of Indiana families, and I think the nation really, is watching to see what they’re going to do with this power. Are they going to kind of float along with the comfortable status quo, or is it going to be a genuinely bold attempt to get this economy moving again?”

Legislative leaders have balked at the tax cut because they prefer to boost education and transportation funding. The House did not include it in the budget the chamber passed, and key senators have said they are hesitant, as well.

Senate Appropriations Committee Chairman Luke Kenley, the Noblesville Republican who is his chamber’s top budget-writer, said Indiana is already in the process of stepping down the state’s corporate income tax and phasing out its inheritance tax.

Pence’s proposed income tax cut “sort of cuts across our present plan, and I think the trick is going to be, how do we meld these plans together and still fund the things that we think are priorities?” Kenley said.

“Obviously we want to fund schools, we want to fund roads, we want to fund higher education, and even a conservative Republican would say these are the kind of investments in the future that you have to make. So we have to reach that right balance.”

Both Kenley and House Speaker Brian Bosma, R-Indianapolis, said Thursday that a key moment will come on April 17, when an updated forecast of how many tax dollars Indiana will take in over the next two years is released.

That forecast will trigger an intense period as the legislature speeds toward the April 29 end of its 2013 session. Lawmakers say the rosier Indiana’s revenue picture looks, the more likely Pence is to get the top item on his first-year legislative agenda.

The Americans for Prosperity ad is a one-minute spot styled after one that former Gov. Mitch Daniels once ran.

It starts with powerful music and green-and-white headlines that tout the state’s economy and its surplus. Then, it abruptly switches to foreboding music and red-and-white headlines that point to House Republicans’ decision to exclude Pence’s tax cut from their budget.

Bosma said Thursday that lawmakers have cut 10 different taxes over the last decade, and are sending $360 million back to Hoosier income tax filers as credits during this year’s tax-filing season.

The House Republican budget sped up the pace at which Indiana would phase out its inheritance tax. Under current law, that tax would be gone by 2022. The House’s budget would eliminate it by 2018.

“There’s going to be a tax cut by the time we’re out of here, I’m confident about that,” Bosma said. “The question is which tax, how much, and when. My pledge is, we’re going to do the right tax in the right way in the right time.”

Pence’s budget proposal included a 1 percent bump in education funding during its first year, and more to divvy up through performance-based measure in his spending plan’s second year.

House Republicans, meanwhile, boosted education funding by 2 percent in their budget’s first year and another 1 percent in its second year. Bosma said they aimed to raise K-12 education funding to its 2009 levels, prior to a cut Daniels ordered as the state grappled with the economic downturn.

After setting aside 12.5 percent of what the state spends in a year in reserves, Pence’s budget also would have sent half the remaining surplus – if revenues meet projections, that’d be about $347 million after closing out the current budget period and next one in two years – for transportation.

House Republicans, though, said municipal officials are desperate for more guaranteed transportation dollars. Their budget included $250 million per year in extra transportation funding, and that money would not be subject to economic upticks or downturns.

“You can’t be the ‘Crossroads of America,’” Bosma said, “if you have a crumbling infrastructure.”

A new state budget that omits Gov. Mike Pence’s proposed income tax cut in order to boost education and transportation funding won the Indiana House’s approval late Monday.

The two-year, $30 billion spending plan advanced on a 68-28 vote, with Republicans supporting it and Democrats opposing, after a marathon day of debating bills ahead of the House’s midnight deadline to send bills across the hallway to the Senate.

It boosts overall K-12 education spending by 2 percent in its first year and another 1 percent in its second year, puts more aside for a tuition reserve fund, and pumps an extra $250 million per year in gas and sales tax revenue for state and local transportation funding.

“It’s balanced. It spends less than we bring in, so there’s a structural surplus,” said the House’s chief budget writer, Ways and Means Committee Chairman Tim Brown, R-Crawfordsville.

“It has a long-term commitment to education,” he said. “We’re starting to build back some of those tuition reserves so that for the next economic cycle, we’ll be prepared.”

Rep. Greg Porter of Indianapolis, the top Democrat on the House Ways and Means Committee, complained that the budget did not include enough for education, teacher training and public health.

“We hurt our people here in Indiana,” Porter said. “This is not a jobs bill. This does not help the middle class.”

The House Republican budget does not include the top priority on Pence’s first-year legislative agenda – a reduction in Indiana’s individual income tax rate from 3.4 percent to 3.06 percent, which would reduce state tax collections by about $520 million annually.

That, Pence has said, left him “very disappointed.” He said he’d continue lobbying lawmakers – and when those lawmakers get an updated forecast of the state’s revenues over the coming two years in April, that’s expected to be the make-or-break point for Pence’s tax cut.

The spending plan was the first drafted by Brown, who took the helm of the budget-writing committee this year. It’ll now move into the hands of his counterpart, Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville.

The bill pumps 20 percent of the sales tax revenue collected on gasoline purchases into transportation and also uses more of Indiana’s 18-cents-a-gallon gas tax for that purpose, addressing a need a group of mayors raised this year.

That’s a departure from Pence’s budget, which included extra funding for transportation only by including a trigger that would send part of the state’s surplus into an infrastructure fund – a move he estimated would amount to $347 million once the current budget is closed out and his two-year budget proposal is also closed out.

Under the House budget, the Evansville Vanderburgh School Corp., which received $142 million this year, would get an extra $2.1 million in the budget’s first year, and then $1.5 million on top of that in the second year.

The Warrick County School Corp., meanwhile, would get a 2.6 percent bump in the first year, from $57.5 million to $59 million, and then another 1.3 percent increase in the budget’s second year, to $59.8 million.

Gibson County schools would all see slightly smaller annual funding increases, while Posey County schools’ funding would flat-line in the spending plan’s first year and then drop slightly in its second year.

Those amounts are impossible to compare to Pence’s budget, since governors typically leave it to lawmakers to write school funding formulas. Still, Pence would have them divide up $63 million less in overall annual funding.

Gov. Mike Pence’s proposal to lower Indiana’s income tax rate didn’t get a vote Tuesday – but a new state budget that drops that tax cut in favor of extra funding for schools and roads did.

A state Senate panel debated two tax cut measures: One that would carry out the new Republican governor’s plan to lower the individual income tax from 3.4 percent to 3.06 percent over two years, and one that would drop the rate to 3 percent over four years.

There was no vote, though, and several of the committee’s members said they will proceed with caution – only giving the tax cut serious consideration if a new revenue forecast predicts an unexpected economic uptick before the April 29 deadline for lawmakers to approve a new budget and adjourn for the year.

“This is not a conclusion of the discussion,” said Senate Tax and Fiscal Policy Committee Chairman Brandt Hershman, R-Buck Creek. “There’s an opportunity to continue this discussion as the revenue picture becomes clear to us.”

The budget-writing House Ways and Means Committee, meanwhile, approved House Republicans’ two-year, $30 billion spending plan. It increases education funding by 2 percent in its first year and 1 percent in its second year and tucks in an extra $250 million per year to beef up state and local transportation funding.

Its omission of Pence’s tax cut – a decision in which the governor said he was “very disappointed” – sets the stage for an intraparty battle that is testing whether Pence has the political capital necessary to achieve the top goal on his first-year legislative agenda.

Advocates of the tax cut included Sen. Mike Delph, the Carmel Republican who is carrying the governor’s proposal.

He told the committee that as the federal payroll tax increases by 2 percent this year, lowering Hoosiers’ income taxes by 0.34 percent would help offset the new burden – and keep $520 million in taxpayers’ pockets each year.

“It would have a cascading, dynamic flow, and it would inject a half a billion dollars into the Indiana economy,” Delph said.

Key legislative leaders, including Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, said they view the issue in a broader context.

Indiana is already phasing out its inheritance tax – a move that will be completed by 2022, but that lawmakers say they might consider speeding up.

“It just seems like we ought to finish that job,” Kenley said.

Sen. Lindel Hume, D-Princeton, also said the state also owes pension money to teachers who entered the profession before 1996 – and is requiring businesses to pay higher taxes to repay more than $2 billion borrowed during the recession to bolster Indiana’s unemployment insurance fund.

He said income taxes are a “regressive tax” because poor Hoosiers have to spend more of the money they earn, while wealthier Indiana residents can save more. Instead, he said, the state should consider cutting its sales tax – or should keep its taxes at their current levels.

“We have things that government really needs to do. Education is a terribly important part of government, and roads – the infrastructure of this state – are very important not only to our people but also very important to businesses that look at locating in Indiana,” Hume said. “Some of those things are more important than taxes.”

Pence has pitched the income tax cut as one that would help the 92 percent of Indiana businesses that file as individuals.

Business groups that are traditionally powerful Republican allies, though, offered lukewarm support for the tax cut.

Indiana Manufacturers Association lobbyist Tim Rushenberg said the proposal has his orgnaization’s “guarded support. Indiana Chamber of Commerce lobbyist Bill Waltz said the group “cannot not” support a tax cut, but that education and roads are vital to Indiana’s economy as well.

Other groups, including the Indiana Family Institute and Americans for Prosperity, said they support the tax cut.

“We support lowering the tax burden on Hoosier families and small businesses, and that includes lowering the individual income tax rate here in Indiana,” said Eric Miller, the head of Advance America. “It’s a good thing to let Hoosier families and small businesses keep more of their hard-earned money.”

Hershman said he won’t schedule a vote on the tax cut proposals that were the subject of his Tuesday committee hearing. The budget, meanwhile, moves to the full House floor for a vote in the coming days.

The Indiana House Ways and Means Committee will vote on Republicans’ two-year, $30 billion budget on Tuesday, the committee’s chairman, GOP Rep. Tim Brown of Crawfordsville, said Monday morning.

He presented the budget to the committee Monday. It includes K-12 education spending increases of 2 percent in its first year and 1 percent in its second year — plus an extra $250 million annually for transportation.

The budget proposal speeds up the phase-out of Indiana’s inheritance tax, eliminating it by 2018 rather than 2022. But it does not include Gov. Mike Pence’s proposal to lower Indiana’s income tax rate from 3.4 percent to 3.06 percent.

Gov. Mike Pence is at odds with Indiana House Republican leaders who opted not to include the top item on his first-year legislative agenda in their new state budget proposal.

The governor said Friday he is “very disappointed” that the two-year, $30 billion spending plan drops his plan to lower the individual income tax from 3.4 percent to 3.06 percent in favor of extra cash for schools and roads.

“By leaving income tax relief out this early in the process, this House budget proposal does not contain the kind of balanced approach that will create jobs and opportunities for Hoosiers. With so many hurting in this economy, Hoosiers deserve better,” Pence said.

House Ways and Means Chairman Tim Brown, R-Crawfordsville, unveiled the GOP’s budget proposal in a briefing with reporters Friday morning.

His plan would boost funding for K-12 public education – an area that accounts for more than half of Indiana’s spending – by 2 percent in its first year and another 1 percent in its second year, lifting the statewide total from $6.5 billion annually now to $6.7 billion.

It would also send more of Indiana’s 18-cents-a-gallon gasoline tax revenue to the Indiana Department of Transportation and into municipal infrastructure budgets, rather than diverting some of that money to pay for state police and license branches.

The biggest debate moving forward, though, will be over Pence’s tax cut – one that would save average single Hoosiers around $100 per year, and would cost the state more than $500 million per year.

The intraparty tension has built in recent months as legislative leaders have resisted the new governor’s top legislative goal.

They’ve said they prefer to address some issues that lingered prior to Pence taking office – including raising education funding up to its levels prior to the 2010 cuts that the economic downturn led former Gov. Mitch Daniels to make, and speeding up the phase-out of Indiana’s inheritance tax.

House Minority Leader Scott Pelath, D-Michigan City, said Friday that Democrats will try to force an up-or-down vote on Pence’s income tax cut.

“We have not heard a lot of bold ideas either from the governor’s office or from the two supermajorities. This is the one bold idea that’s been brought forth. I think to ignore it is a mistake,” Pelath said of Pence’s plan.

“He has had an idea. He campaigned on it, he got elected on it, the people of Indiana have spoken – and we need to give that consideration.”

Republican Gov. Mike Pence delivered federal officials an ultimatum: Let Indiana use its own plan instead of Medicaid to cover 400,000 more Hoosiers, or watch the state refuse to implement that portion of the health care law.

He set forth those two options Wednesday in a letter to Kathleen Sebelius, the secretary of the U.S. Department of Health and Human Services.

Instead of a traditional Medicaid program that he called a “broken” budget-buster rife with “waste, fraud and abuse,” Pence said he wants to use the health savings account-based plan that Indiana launched in 2008 to provide expanded access to government-funded insurance.

It’s a demand that federal officials have declined in the past, but Pence’s administration is holding out hope for a favorable ruling on an appeal as state lawmakers advance measures that would trigger the expansion only if Indiana gets what it wants.

“I believe that the Healthy Indiana Plan should serve as the starting point for all future discussions of health care reform in Indiana,” Pence wrote.

“While our administration has committed to fully funding Indiana’s current Medicaid forecast, we believe that expanding coverage absent significant reforms would not be in the best interest of Hoosiers.”

The move sets Indiana apart from its neighboring states, all of which are moving toward implementing the Medicaid expansion that was a key part of President Barack Obama’s health care law.

And it differentiates Pence from the two Republican governors next door – Ohio’s John Kasich and Michigan’s Rick Snyder – who are doing so despite strenuous objections from conservatives who complain of the Medicaid expansion’s price tag.

The Indiana House and Senate public health committees advanced bills Wednesday that would set in motion the Medicaid expansion if the federal government allows the state to use its Healthy Indiana Plan as the vehicle.

Gov. Mike Pence is following through with the pay raises his predecessor promised to about 90 percent of Indiana’s state employees.

The new Republican governor announced Tuesday that a total of $38 million in raises – a 3.1 percent increase on average for the 26,000 workers who qualify will show up on this week’s pay checks.

“The state of Indiana has one of the most talented, skilled and effective workforces in the nation,” Pence said in a statement. “It’s important to reward those who do a top-level job to help make Indiana a better place to live.”

The raises are based on employees’ performance. About one out of every 20 workers earned “outstanding” evaluations and will receive 8 percent raises. The one in 10 whose reviews said they “exceed expectations” got 5 percent pay bumps. And the 75 percent of state workers who met expectations received an extra 3 percent.

The remaining 10 percent who fell short of expectations did not receive raises.

Daniels announced the pay increases in December, as he prepared to leave office, in a letter to all of Indiana’s workers.

“This continues our practice of rewarding our employees doing the best job serving our taxpayers, a one of a kind performance based system for state governments across the country,” he said then.

The pay-for-performance system was instituted by Daniels in 2006.

The raises for 2013 are slightly higher than what Daniels had authorized a year ago – 6 percent for outstanding workers, 4 percent for those who exceeded expectations and 2 percent for those who met expectations.

The year before that, he had handed out raises that averaged 1.3 percent, and in 2009 and 2010, he opted to keep workers’ salaries flat as the state weathered the economic downturn.

At new Gov. Mike Pence’s urging, Eric Holcomb is set to stay on as the Indiana Republican Party’s chairman.

The long-time aide to former Gov. Mitch Daniels said he decided to keep the job he’s held for two years – as long as he’s approved, as expected, by the state GOP’s central committee in March – after Pence asked him to do so during a recent meeting.

Holcomb plans to use the role to oversee a new set of technology upgrades and outreach efforts for a party that already holds most of Indiana’s state offices and congressional seats, he told the Courier & Press.

“I’m very excited about getting out of Indianapolis and out around the state a lot more than I’ve been able to the last couple years – not just reaching out, but actually engaging and building relationships in some areas we haven’t in the recent past,” he said.

Pence urged members of the state GOP’s central committee to back Holcomb in a message sent to each member of that committee on Friday.

“I asked Eric to remain at the helm of the Indiana Republican State Party because I have confidence in his integrity and the success that you and our entire Republican team have had under his leadership,” Pence wrote.

“In a word, I believe that under Chairman Holcomb’s leadership, we can take our state party from good to great.”

Holcomb said he and Pence are “mutually excited about the rock-solid foundation” that the GOP has in place now – including control of the governor’s office, seven of state’s nine congressional seats and more than two-thirds of the seats in both the Indiana House and Senate.

He said he views 2013 as critical because it’s a year state party officials can work without looming elections fully diverting their focus.

“In a four-year cycle, I think the off year is probably the most important – one that can be squandered easily because you just get busy,” he said.

He said he’ll spend his time cultivating networks of young professionals who are galvanized by the nation’s debt, and also traveling to urban areas that haven’t received as much attention from Indiana Republicans as Holcomb believes they should.

“We’re going to be more methodical about covering the whole state – and not just me, but the whole team,” he said.

Holcomb also said the state GOP will overhaul its website with the goal of more directly engaging supporters who are interested in specific issues or areas – and that other election-related technological upgrades are planned.

Holcomb will keep his job as his counterpart, Indiana Democratic Party Chairman Dan Parker, prepares to leave after eight years.

Democratic U.S. Sen. Joe Donnelly has recommended John Zody, a former chief of staff to U.S. Rep. Baron Hill and regional campaign aide for President Barack Obama’s re-election effort, to replace Parker.

A push by Gov. Mike Pence and legislative Republicans to make it easier for students to qualify for Indiana’s private school vouchers is drawing stiff opposition from groups that prefer to pump more money into public schools.

The wide-ranging measure would allow current private-school students from households that earn up to about $64,000 for a family of four to qualify for Indiana’s two-year-old voucher program – and keep those vouchers even if their families’ income grows as high as $128,000. It would also offer their parents larger tax deductions.

The proposal was the subject of a five-hour hearing in the House Education Committee on Tuesday, and will get a vote in the panel’s Thursday meeting. It’s a top item on Pence’s first-year legislative agenda.

“The governor has consistently stated that there’s nothing that ails public education that cannot be cured by giving teachers more freedom to teach and parents more choices in the education of their children,” said Marilee Springer, Pence’s top policy adviser.

House Bill 1003, being carried by House Education Chairman Bob Behning, R-Indianapolis, would do away with Indiana’s requirement that students spend at least one year in public schools before they can qualify for private school vouchers.

It would expand eligibility so that students whose families earn up to three times the amount necessary to qualify for free or reduced lunch would qualify. And it would eliminate income restrictions entirely for foster children and those with special needs.

The measure would also increase from $1,000 to $3,000 the amount of education expenses such as textbooks that parents of home-schooled or private-schooled children could write off as tax deductions. To Democrats’ dismay, that deduction is not available for public school parents.

And it would launch a new dollar-for-dollar tax credit for Hoosiers who donate to organizations that hand out pre-kindergarten scholarships.

The overall bill would “directly subsidize private schools,” Suzanne Felli, an Indianapolis public school volunteer, told the committee Tuesday.

“This creates an even larger subsidy program which is for the benefit of private and religious schools,” said Joel Hand, the executive director of the Indiana Coalition for Public Education. “All it does is expedite the drain of funding from public schools.”

He said the bill would move Indiana in a direction that would ultimately result in public schools being attended by “only those children whose parents cannot possibly find a way to send them to a private school or children whose parents simply don’t care about their kids.”

He and other parents and public-school advocates said the state should instead use the money for increases in K-12 public school funding – a $6.3 billion per year line item in Indiana’s budget, but that Pence proposed only $63 million in increases for next year.

Parents and private-school leaders lined up to support Behning’s bill, as well. They said since Indiana schools are currently funded on a per-pupil basis, spending money on private schools wouldn’t actually cut funding for public education.

Kevin Abbott, a South Bend father of five children, said he and his wife have spent about 20 percent of their take-home pay on private school tuition.

He said he has three children currently attending a private Christian school in Mishawaka, and that eliminating the requirement that they attend public school for a year in order to qualify for a voucher would ease his family’s burden.

“It’s probably not a good choice for our kids to remove them from school, put them in another school and bring them back again,” he said. “Financial matters are important to us, but not as important as our children’s education.”

Even if the voucher expansion measure clears the Indiana House, it could see changes once it crosses the Statehouse hallway.

Senate Education and Career Development Committee Chairman Dennis Kruse said Tuesday that he’ll give the bill a hearing and a vote – but that he considers it a “pretty broad” expansion of a voucher program he thinks it’s too early to change drastically.

He’d originally planned to give a vote on a Senate bill that would allow siblings of students already using the voucher program to qualify without spending a year in public schools, and that he could look for a final bill that splits the difference between that and the House proposal.

“There might be some middle ground in between there,” said Kruse, R-Auburn.

He said eliminating the requirement that students first spend one year in public schools “gives me some pause” because lawmakers envisioned the voucher program as one for students who knew from experience that public schools weren’t for them.

“There’s some value in having that experience,” Kruse said. “I’d say that doesn’t mean it has to be that way forever – we may change it. But that was one of the premises when we passed it, that one year in public schools, and there was some justification for that.”

Gov. Mike Pence’s political influence will quickly wane if he doesn’t start offering more specific policy proposals, the top Indiana House Democrat said Friday.

“I’m very worried that his honeymoon period is slipping away from him. We need the governor to provide leadership in addressing this immediate jobs problem,” said House Minority Leader Scott Pelath, D-Michigan City.

The new Republican governor laid out parts of his legislative agenda during his State of the State address in January.

He asked for a reduction in the state’s individual income tax rate from 3.4 percent to 3.06 percent, the creation of new regional councils that would develop vocational education curricula, and an expansion of Indiana’s two-year-old private school voucher program.

Other portions of his agenda, though, are less clear. State Sen. Mike Delph, R-Carmel, was carrying a tort reform measure for Pence, but gave up on it Thursday after Pence repeatedly declined to directly answer questions about it.

“There’s the sense in this building that he needs to provide more clarity about his expectations and where he wants Indiana to go,” Pelath said. “There’s a point where the broad visions have to be turned into legislative specifics.”

He said he still doesn’t know the specific items that make up the governor’s legislative agenda.

“I can’t point to a group of bills right now where I know this is the governor’s bill and I know the majorities are working to bring it forward,” Pelath said, calling that approach a clear departure from former Gov. Mitch Daniels.

He said the General Assembly ought to be doing more to create jobs – and singled out three bills that have yet to receive committee hearings.

Pence’s spokeswoman did not immediately respond to a request for comment.